A Bench led by the Chief Justice of India heard a batch of matters raising issues on the continuance of interim protection granted to borrowers whose accounts were classified as “fraud” by banks, in the aftermath of the Supreme Court’s ruling in State Bank of India v. Rajesh Agarwal. Senior Advocate Dama Seshadri appeared for the petitioners, while Solicitor General Tushar Mehta represented the Union of India.

During the hearing, the Court was taken through a complex procedural history involving multiple appeals, diary numbers and interim orders, with petitioners seeking a limited extension of protection without any expression on merits. It was urged that any continuation of interim relief be framed carefully, as the matters were in a “fourth round” of litigation and could otherwise be misconstrued as the Court entertaining successive appeals.

The Solicitor General clarified that Rajesh Agarwal settled two distinct principles: while no prior hearing is required for registration of an FIR, principles of natural justice mandate notice and an opportunity of hearing before a borrower’s account is classified as fraud under RBI Master Directions. He submitted that earlier interim orders restraining even registration of FIRs were no longer sustainable after the judgment.

Petitioners contended that their interim protection had been vacated mechanically following Rajesh Agarwal, despite the Supreme Court having held that where borrowers had earlier enjoyed protection, it could continue until the High Court decided the matter on merits. Reliance was placed on portions of Rajesh Agarwal treating fraud classification as having civil consequences akin to blacklisting.

The hearing also touched upon divergent views among High Courts on whether the opportunity of hearing required under Rajesh Agarwal must be personal or could be limited to a written notice inviting explanation, an issue stated to be pending consideration in connected matters. Petitioners sought liberty to separately challenge any fresh orders passed by banks after issuing notices.

The Bench did not express any view on the merits, but indicated that matters may need to be streamlined, including possible de-tagging of criminal proceedings from civil challenges to fraud classification.